The U.S. stock market stumbled and fell into the closing bell last Friday, but it is proving to be just as resilient as ever.
Yesterday the S&P 500 proved once again that 3,000 is an important support level for the index. The S&P 500 first bounced up off support at 3,000 in mid-June after the index tanked on June 11, and it did the same thing again yesterday.
We’re looking to take advantage of this support bounce and the continued bullish optimism on Wall Street by selling a put write on Home Depot (NYSE:HD).
The Federal Reserve Has Done a Lot For HD
The Federal Reserve’s decision to cut the federal funds rate several months ago may have been one of the best things the central bank could do for HD.
Collapsing Treasury yields during the coronavirus pandemic have been a boon to those looking to purchase or refinance their homes as rates on home mortgages have plummeted.
This has made it much easier for existing homeowners to pull equity out of their homes for remodeling projects and for new homeowners to get into and fix up their new homes. This has boosted demand for the products and services HD offers.
Stay-at-home orders and social distancing have also been good for HD because more homeowners have started tackling home-improvement projects they’ve been putting off and picked up new hobbies, like gardening.
This increase in demand has helped keep HD’s stock price trending higher.
HD has also been the beneficiary of some of the Fed’s corporate bond purchasing, and while those benefits will fade away eventually, they’re good for HD in the short term.
HD’s Strong Support at $235
HD’s current consolidation range has a strong up-trending support level, and we anticipate the stock will continue to consolidate in this range for the next few weeks.
If you look at the chart below, you can see that HD’s up-trending support intersected longer-term support at $235, making it a strong candidate for a strike price.
Daily Chart of Home Depot (HD) — Chart Source: TradingView
The $235 strike price is relatively close to HD’s current price, meaning you should be able to collect a decent premium without looking too far into the future for your expiration date.
We would recommend looking for a position that expires in mid-to-late July.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.